Coal India share price rises 2% after Q1 results; should you buy the stock?
4 min read 09 Aug 2023, 09:21 AM ISTCoal India's stock has underperformed the market in the past year, but brokerage firms remain optimistic about its prospects. Nuvama Wealth Management and Motilal Oswal Financial Services have maintained a buy rating on the stock. JM Financial has upgraded the stock to a buy.
PremiumCoal India share price rose almost 2 per cent in early deals on BSE on Wednesday, a day after the company reported its June quarter (Q1FY24) scorecard. The stock opened over a per cent higher at ₹233.05 against the previous close of ₹230.25 and traded with a gain of 1.26 per cent at ₹233.15 on BSE around 9:20 am.
Shares of Coal India have underperformed the equity benchmark Sensex in the last one year. The stock is up about 7 per cent while the Sensex has gained about 12 per cent in the last one year period. The stock hit its 52-week high of ₹263.30 on November 9, 2022, on BSE.
Coal India Q1 results: Coal India posted a 10 per cent year-on-year (YoY) decline in net profit which stood at ₹7,941 crore during the quarter ending June 2023 down from ₹8,834 crore reported during the corresponding quarter last year.
The net sales of the company grew marginally to ₹33,072.6 crore during the quarter under review from ₹32,497.9 during Q1FY23. Sequentially, Coal India's net profit jumped 43 per cent from ₹5,527.6 crore during the quarter ending March 2023.
Read more: Coal India Q1 Results: Net profit plunges 10% to ₹7,941 crore, marginal rise in net sales
Brokerages remain upbeat on Coal India after Q1 results
Brokerage firms are positive about the prospects of Coal India for the medium to long term. While most of them have maintained their buy call on the stock, some of them have even upgraded the stock.
Brokerage firm Nuvama Wealth Management maintained a buy call on the stock with a target price of ₹361, implying a 57 per cent upside.
The brokerage firm estimates Coal India to report a volume uptick of 7 per cent and 4 per cent YoY in FY24 and FY25, respectively, which shall aid operating leverage. Besides, e-auction prices have been stabilising at a 54–58 per cent premium over FSA (fuel supply agreements) prices in Jun-Jul’23.
Nuvama believes thermal power generation would increase by 4–5 per cent YoY in the months ensuing monsoon, which should lead Coal India to increase supply to the power sector and in turn help in firming up e-auction prices.
"The stock is available at about 9 per cent dividend yield. During FY18–22, Coal India recorded an average EBITDA of ₹25,100 crore. In light of increasing volume, partial FSA price hike and cost peaking out, we believe Coal India would continue to generate EBITDA much above average in the foreseeable future," said Nuvama.
"Improved volume, higher FSA prices and peaking out of costs are likely to offset lower e-auction prices. We expect Coal India to continue to pay DPS (dividend per share) of ₹20 each in FY24E and FY25E, implying a dividend yield of 9 per cent," Nuvama said.
Brokerage firm Motilal Oswal Financial Services also maintained a buy call on the stock with a target price of ₹300, implying a 30 per cent upside potential in the stock price from the current level.
"Coal India remains our top pick in the mining sector. The stock is trading at an inexpensive valuation of 3.1 times on FY25E EV/EBITDA. We retain our buy rating with a target price of ₹300, valuing the stock at 4.5 times FY25E EV/EBITDA," said Motilal Oswal.
(EV/EBITDA stands for "Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization." It's a financial metric used to evaluate the value of a company relative to its earnings while considering its debt and other financial aspects.)
"We believe the world has come to terms with the fact that fossil fuels cannot be ignored, at least in the near term," said Motilal Oswal.
"China has also increased its dependence on thermal power and has commissioned nearly two thermal power plants each week in CY22 (calendar year 2022) and has added more plants in the first half of the calendar year 2023 (H1CY23) as well. With 14 countries adding new coal plants in the last one year and eight countries announcing new projects, the dependence on coal is therefore likely to increase in the near term," the brokerage firm added.
Motilal pointed out that the government’s commitment to providing a 24x7 power supply to all homes augurs well for Coal India to achieve strong coal production in the next few years.
Brokerage firm JM Financial upgraded Coal India to a 'buy' from a 'hold' while maintaining its SOTP-based target price of ₹255, implying an 11 per cent upside.
The brokerage firm highlighted that the stock has corrected in recent months: however, the company continues to show improvement in production and better-than-expected realisation in e-auction prices.
JM Financial also underscored that the government, in order to ensure uninterrupted power supply, has been taking various measures such as ensuring adequate domestic coal production, improving coal evacuation infrastructure, blending of imported coal, compulsory running of imported coal-based plants, etc. This bodes well for Coal India in terms of higher production and offtake.
Read all market-related news here
Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.
